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Pensions snapshot - December 2015

This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of November 2015 in relation to occupational pension schemes. The topics covered in this edition are:

This produced no changes of any major significance. The key change was to confirm that there will be a delay of six months on the next two scheduled increases in minimum contributions to automatic enrolment pension schemes. The change is made to align the increases with tax years. This is set to save the Exchequer £840 million in tax relief - something the Chancellor has demonstrated an attraction to in other areas.

Regulator consults on new draft code of practice on DC governance

tPR has issued a consultation on substantial revisions to code of practice 13, originally issued in November 2013.
The original 31 "quality features" have gone (on the grounds that they are now "business as usual"). The code now covers six key areas:

This is a much needed update and a refreshingly short code. Also to be welcomed is tPR's proposal to deliberately distinguish between requirements and expectations in its language.

DC Flexibilities - consultation on consequential changes

DWP is consulting on consequential changes to existing legislation – largely driven by the flexibilities which came into force in April.

The areas covered by the tweaks include PPF compensation rules, pension sharing and earmarking Orders on divorce, and discharging liabilities on winding-up. In addition, legislation is planned to make it a legal requirement for trust-based schemes to give risk warnings to members who think they might want to take advantage of the flexibilities.
DWP is also seeking views on whether changes are needed in relation to how the advice requirements affect pension policies with guaranteed annuity rates (GARs). There are two key questions:

Should there be a simpler valuation method for the purpose of determining whether the advice requirement threshold (more than £30,000) has been hit in the case of GAR benefits?

Should there be an obligatory risk warning to make members aware of the value of the GAR they are giving up and, if so, should this be required even where the advice requirement threshold is not met?

The consultation closes on 11 January 2016 and the regulations are due to come into force on 6 April 2016.

PPF Levy interest - PPF Ombudsman rejects waiver referral

The PPF Ombudsman has upheld the PPF's decision to charge interest on late payment of a scheme's risk-based levy, following a previous unsuccessful challenge of the levy.

The original levy challenge related to the PPF's rejection of a Type A contingent asset, which complaint went all the way to the High Court. The PPF exercised its discretion to waive interest from the date of the Deputy PPF Ombudsman's determination, on the basis that it considered that it was reasonable for the Trustees to have appealed that determination. It also decided to waive interest for a further period of three months – being the difference between the date on which it had said a review decision would be issued and the date a decision was issued. However, it refused to waive interest for the period of the Deputy PPF Ombudsman's investigation or for any period outside of the PPF's own "soft" 28 day deadline for giving a review decision (which the Ombudsman confirmed was not an absolute deadline).

The PPF Ombudsman rejected the complaint, confirming that the PPF's power to waive interest is a discretionary one. The PPF must, if relevant, have regard to whether there is any application for review which has not been finally disposed of, but there is no requirement for it to waive interest for the relevant period if there is. Schemes should bear this in mind, alongside looking carefully at the merits of any application for review of the levy.

The insolvency and restructuring team at the PPF has issued a guidance note to IPs faced with litigation issues. By way of background, the PPF assumes the creditor rights of trustees during the assessment period and it is therefore commonly the largest creditor. Some litigation will require the sanction of creditors and, in any event, IPs have a duty to act in the best interests of creditors generally.

Essentially, the guide seeks to ensure that IPs undertake a thorough and sensible cost benefit analysis before pursuing or defending litigation and are able to articulate that analysis clearly to the PPF.